In Student Loan Write-Off Plan from Department of Education, Corinthian Students Get Discharge Offer

NEW YORK (MainStreet) — The Department of Education (ED) has taken steps toward forgiving student loans used to attend the bankrupt Corinthian Colleges (COCO), it announced this week.

While it has begun to cross the Rubicon toward a resolution of this crisis, it has still not reached the other side as far as advocates for for-profit college students are concerned. They've applauded ED’s attempt, but say it's not enough.

Maggie Thomson, campaign manager for Higher Ed, Not Debt, said that because the for-profit college was perpetrating a fraud, total loan forgiveness is a no-brainer.

”Corinthian Colleges engaged in systematic fraud that left students with crippling levels of debt and poor job prospects,” Thomson said. “Corinthian students deserve a full and automatic refund, the Department’s plan as outlined offers relief for only a small group of students. We hope this action is just a first step as it is insufficient to address the true scope of the harm Corinthian caused students.”

"We encourage the Department of Education to further investigate and publicize additional findings of fraud at Corinthian campuses to ensure all students deceived by Corinthian have access to a refund," she added.

Meanwhile, the Debt Collective has added to the ranks of Corinthian loan refuseniks. In a statement, ED said that it is "helping students who believe they were victims of fraud, regardless of whether their school closed." That would expand write-off eligibility to other schools.

A Corinthian write-off that covered all borrowers of federal loans would be expensive and unprecedented. The price tag would be about $3.5 billion if every Corinthian student who took out a loan in the last five years was included.

A little-known law called ""defense to repayment" or "borrower's defense" gives borrowers loan forgiveness if they believe they were defrauded by their college under state law. ED said yesterday that it "is taking unprecedented action to create a streamlined process that is fair to students who may have been victims of fraud and that holds colleges accountable to taxpayers."

The belief is widespread that employers routinely consigned resumes from Corinthian graduates to the trash, because their degrees were considered worthless. The notion that Corinthian provided anyone with an education was a key part of the fraud.

ED Under Secretary Ted Mitchell said in a blog post that “The Department is committed to helping support affected students. Given the pressing need presented by the unique situation for students who attended colleges owned by Corinthian, the Department is announcing specific steps for students who attended those campuses, as well as outlining broader processes for all students that will be established moving forward.”

Those include extending debt relief to eligible students wherever possible, providing loan forbearance and pauses in payments and appointing a Special Master who will be dedicated to borrower defense issues.

ED also wants a better system for debt relief in the future—a move that may encourage future claims. The Department said that it “will develop new regulations to clarify and streamline loan forgiveness under the defense to repayment provision, while maintaining or enhancing current consumer protection standards and strengthening those provisions that hold colleges accountable for actions that result in loan discharges.” That process is expected to begin this year and will not affect the loan discharge process for current applicants.

“While we praise the Department’s first step, we continue to have a number of questions and concerns,” said National Consumer Law Center Attorney Robyn Smith. She included that a lack of automatic relief would exclude eligible borrowers from applying who aren’t aware that they qualify. “The Department has acknowledged that historically only 6% of eligible borrowers contact the Department about closed school loan discharges,” she said. “How will the Department ensure students know about their eligibility and apply?”

Smith also said that loan servicers have to get with the program once it’s in place. “Loan servicers will be the first call for most borrowers and will continue to receive loan discharge and Defense to Repayment applications,” she said. “As we previously described in a letter to the Department, in some cases loan servicers are providing incorrect information to borrowers. The Department must improve its oversight of loan servicers and ensure that they are providing accurate information, presenting borrowers with all of their options and properly evaluating loan relief applications.”

”At a minimum, this system must provide automatic group relief for borrowers covered by government agency findings of state law violations,” Smith said. “For other borrowers, the system must be accessible and simple, without any burdensome individualized evidentiary requirements.”

Smith noted that “other large for-profit school chains may close in the near future.” Another wave or for-profit college loan write-off claims may be on the horizon.”

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